The Southern Illinoisan

10 Steps to Buying a Home

Step 1. Set a Budget and Start a Housing Fund

When you speak to a lender, you should already have a budget in mind. This is the amount you can realistically afford to pay toward a mortgage each month. There are all sorts of mortgage calculators online to help you determine your budget.

Step 2: Check Your Credit Reports & Scores

This is another critical step when buying a house, and it's something you should start doing today. Your credit score can make or break your chances of getting a mortgage loan.

Step 3. Choose the Best Type of Loan

FHA. Conventional. ARM. Fixed-rate. You've got quite a few choices to make when it comes to mortgage loans. Making the right choice now can help you avoid problems later on. The good news is that many of the so-called exotic mortgage products disappeared in the wake of the housing crisis. Today, we are left with the traditional workhorses of the lending world.

Step 4. Get Pre-Approved by a Mortgage Lender

Mortgage pre-approval is the next logical step to buying a home. You've got a budget and a spending limit on paper. You've started saving your cash. You've checked your credit reports and scores. And you've researched the different types of mortgages to see which one suits your situation. Now you're ready to talk to a mortgage lender.

Step 5. Find a Real Estate Agent

Is this your first time buying a home? Will you be purchasing a home in a city that's new to you?

In either of these scenarios, you should have a real estate agent help you. In most states, the seller is the one who pays the agent's commission. So there's really no reason to fly solo.

A good agent can help you navigate the later steps to buying a home especially steps 6 and 7 below. You should accomplish steps 1 - 4 on your own, before talking to an agent. Once you've been pre-approved by a lender, you can start looking for an agent.

Step 6. Start Shopping for a Home

For most people, this is the most exciting step to buying a home. This is when you start looking for the place where you'll live for the next few years or longer.

Step 7. Make an Offer

When you've found a house that meets your needs, you're ready to make an offer. This is one of the most important steps when buying a home. Make a reasonable offer, and the seller will be more likely to accept it. Make an offer that's too low, and you risk insulting the homeowners.

Your offer should be based on comparable sales. These are similar types of houses that have solid in the same area recently. This is the best way to determine the current market value of a home you're considering. Remember, the seller's asking price might be realistic -- or ridiculous. You won't know until you look at the "comps."

Step 8. Get a Home Appraisal

How much do you plan to put down on the home? Five percent? Ten percent? Twenty? In each of these scenarios, the mortgage lender is making a much larger investment than you are. So they have more at stake. As a result, they'll want to ensure the home is worth the amount you've agreed to pay for it.

The last thing the lender wants to do is invest $275,000 in a home that's only worth $220,000. If they had to foreclose and repossess the home down the road, they would end up selling it for a huge loss. So the lender will have the home appraised to determine its current market value.

Step 9. Get a Home Inspection

A home inspection is a non-invasive examination of the house that usually takes place after the offer has been accepted. It’s "non-invasive" because the inspector won't be pulling up carpet or prying off any panels to examine the home. He will examine everything he has access to, and nothing more.

Most inspections will include the visible portions of the roof, foundation, plumbing, electrical system, and heating / cooling system. If there are any other installed systems like a garbage disposal or sump pump, the inspector will look at those too.

Step 10. Settlement / Closing

The period of time between the purchase agreement and the final settlement is known as escrow. The transfer process itself is referred to as closing. It involves a lot of paperwork and the final distribution of funds. The seller gets paid, if applicable. The real estate agents receive their commissions. The lender fees will be paid. And you'll walk away with the keys to your new house.

Make sure you save up enough money to cover your closing costs. Your lender will give you a written estimate of these costs in advance, at the time you apply for the loan. But you should expect to pay more than the estimated amount. If your lender estimates your closing costs to be $7,000, you should prepare for them to be $8,000 by the time you actually close. It's called an "estimate" for a reason. It's common for home buyers to pay more than the estimated amount on closing day.

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